Barefoot Investor: Why the end is near for stock market ‘craziness’

Financial markets right now are a dog’s breakfast. I have no idea when it will end, but there is no doubt how it will: Badly. Mark my words, there’s a punchline coming.

Author and financial advisor Scott Pape ., Picture:

Hayley thinks I’m a genius.

The young mum wrote to me this week after reading myBarefoot Investor For Familiesbook.

She’d gotten to the part where I mentioned an investment that has rocketed 1,500% this year.

What was the investment?

Dogecoin.

Here’s what I wrote:

“Maybe you’ve picked this book up at the Romsey Op Shop in the year 2040. Maybe that guy on Twitter was right and the global currency is now Dogecoins. (Maybe not.)”

I was joking, of course.

Then again, so was the Aussie who invented Dogecoin, Jackson Palmer.

He and a mate typed up the cryptocurrency code when they were bored one afternoon in 2013.

“It was a piss-take,” he told the Wall Street Journal earlier this month.

Palmer created Dogecoin as a parody of all the scammy cryptocurrencies that were being launched in 2013. (The text on the Dogecoin logo reads “wow much coin how money so crypto plz mine v rich very currency … wow”.)

Yet that was then … and this is now.

And after a series of tweets from Elon Musk and Snoop Dogg, and a riotous ramp by Reddit day traders, today the value of all the Dogecoins is … wait for it … $US10 billion.

Palmer, who gave away all his Dogecoins years ago, clearly wants nothing to do with the mongrel he created:

“It doesn’t make sense. It’s super absurd. The coin design was absurd.”

Woof! Woof!

Look, I lived through the dot.com boom and I can tell you it has nothing on the craziness that’s happening today.

Then again, back at the turn of the millennium the world’s central banks weren’t barking mad.

Today the US Federal Reserve has its printing press on overdrive and is flooding the world with trillions of freshly minted dollars. At the same time, interest rates are set at (basically) zero and will remain there for the foreseeable future.

With so much money sloshing around the world trying to find a home, is it any wonder some of it goes to the dogs?

“We are now living through the greatest disconnect between financial markets and the real economy that we have ever seen”, says billionaire and investment expert Mohamed El-Erian.

He’s right.

Financial markets are a dog’s breakfast.

I have no idea when it will end, but I have absolutely no doubt how it will end:

Badly.

Mark my words, there’s a punchline coming.

And it’s only when the joke lands that we’ll work out who finds themselves is in the doghouse.

Tread Your Own Path!

First Home Hell

Barefoot,

I have been saving as much as I can. By mid-year we should have a deposit and could start looking at buying rather than renting. I know your normal advice is to buy a house when you can afford it. But does that still apply when these inflated house prices seem like a bit of a false economy?

Doug.

Hi Doug,

I feel for you.

Property prices are getting juiced because of low interest rates.

And the Reserve Bank has said they’ll keep rates at (basically) zero for at least the next three years.

Here’s how this is playing out in the real world.

Greater Bank has a one-year fixed home loan rate of just 1.69%!

The lowest on record.

At the same time, the average rate on a bank savings account, according to Mozo is just 0.18%!

Also the lowest on record.

In other words, right now property prices are at record highs and are rising faster than most people can save. Which is great for people like me who own property, shares or other assets. Yet it’s absolutely horrific for anyone starting from scratch, trying to save and scrounge up a first home deposit.

So, what to do?

Well, there’s all kinds of advice people will try to give you:

Ranging from the practical (save a 20% deposit, take a long view) …

To the patronising (buy out in Woop Woop and sit on milk crates for a few years) …

To the pathetic (“I’m 23 and own 75 rental properties, it ain’t that hard if you have a system”).

Yet there are no easy answers.

So instead I want to leave you with this thought:

Interest rates are only going one way from here … up.

I don’t know when. But if you’re taking out a 25-year mortgage, well, chances are you’ll see hikes.

And that’s why I’ve consistently advised people to stick with what works …

Save up a 20% deposit, find a home you’re happy to live in for 10 years, buy it.

Forget about what the market is doing.

Property prices are getting juiced because of low interest rates, says Barefoot

Fire Alert

Hi Scott

My beautiful friends, who have three children under eight, were caught in the Gidgegannup fires yesterday. They escaped with the clothes they were wearing, their cats and their toothbrushes. They lost their home and all other possessions. If there is any advice or assistance you could suggest to them, it would be ever so appreciated. I know I am being rather presumptuous but I thought asking you may be my best way to help them.

Deb

Hi Deb,

I called your friends this week and offered them a hand.

Anyone struggling with money can call the National Debt Helpline on 1800 007 007, or the Small Business Support Line on 1800 413 828, and speak to a financial counsellor like me.

Your question really hit home because this weekend marks the 7th anniversary of Liz and I losing practically everything we owned in a bushfire.

Like your friends, we didn’t think it was going to happen to us.

So, here’s a five-minute peace of mind booster.

Pull out your phone and call your insurance company and ask them how much you’re covered for, and what events you can claim for. Bonus points: while you’re on hold, take a video of your house and all your possessions. (And, as an extra bonus, your conversation will be recorded, which you can call on if you ever have to make a claim.)

Barefoot Valentine’s Day

Hello Scott,

Our relationship began in an online Barefoot group about two years ago — and we just got married last month! We are hardworking teachers who enjoy being thrifty. We have an ETF share portfolio and an investment property, and we are enjoying the financial freedom of following the Barefoot Steps.

To be together we have had to contend with personal tragedy, extended border restrictions that separated us for months and a two-week quarantine. We have also had some unexpected medical expenses in this bizarre year. But the whole time we repeated “We’ve got this!” Our wedding was small, uncomplicated and focused, with the same happiness observed as at weddings that cost 10 times what we spent.

Thanks again, Simon and Michelle

Hi guys,

You made my day.

When I started writing this column, I had no idea it would turn into a community.

Yet, over the past 17 years, thousands of Barefooters from all around the country have read along with the questions in these pages each week. Sometimes they thump the table … shake their head … and ask “how the hell did they get themselves into this mess?”

But every now and again a question pops up that has everybody cheering. And, today, yours is it.

Happy Valentine’s Day!

Clarification:

Last week’s article on copy trading incorrectly attributed a rogue trader losing all his money as occurring on the eToro platform. It has since come to light that these massive losses occurred on a rival copy trading platform, and I apologise to eToro for the error. However let me be clear: my view is you should avoid copy trading, on any platform, along with ads featuring sock puppets that claim copy trading is simple and easy to do.

Information and opinions provided in this column are general in nature and have been prepared for educational purposes only. Always seek personal financial advice tailored to your specific needs before making financial and investment decisions.

Barefoot Investor For Families. The only kids’ money guide you’ll ever need.

If you have a money question, go to barefootinvestor.com and #askbarefoot.